BI plans new ruling on CAR this year<\/p>\n
Berni K. Moestafa, The Jakarta Post, Jakarta<\/p>\n
By the end of 2002, Bank Indonesia wants local banks to
\ninclude currency and interest rate swings as risk factors
\nweighing against their capital adequacy ratios (CAR), according
\nto a senior central bank official on Monday.<\/p>\n
Bank Indonesia senior bank researcher Wimboh Santoso said a
\nruling on the new CAR policy was due to come out by year's end.<\/p>\n
He also denied a report by The Jakarta Post quoting a senior
\nofficial at the Indonesian Bank Restructuring Agency (IBRA) as
\nsaying last week that Bank Indonesia would raise the minimum CAR
\nlevel to 12 percent from eight percent currently.<\/p>\n
"Instead of raising the CAR level this year, we plan to
\ntighten CAR requirements by including the market risks," he told
\nreporters.<\/p>\n
Wimboh said that risks of foreign exchange losses, and lower
\ninterest earnings should be taken into account when gauging a
\nbank's healthiness through its CAR level.<\/p>\n
CAR is the ratio of a bank's capital against its risked
\nweighted assets, most of which are loans. Bank Indonesia shuts
\ndown banks that fail to meet the CAR requirement.<\/p>\n
"Thus far we have been measuring only the credit risks in a
\nbank's CAR," Wimboh said, adding that the new ruling would
\ninclude risks on the capital side of a bank's CAR.<\/p>\n
For example, he said, banks with U.S. dollar time deposits but
\nrupiah interest rates were at risk of foreign exchange losses.
\nThat risk should be reflected on a bank's CAR.<\/p>\n
Swings in Bank Indonesia's benchmark rates poses another risk
\nas they affect bank earnings from the interest rate margins.<\/p>\n
Wimboh said banks with foreign exchange exposure and those
\nstuck with government bonds carrying fixed rates would face
\ngreater pressure under the new CAR ruling.<\/p>\n
But for now, he said, it was too early to issue the ruling.<\/p>\n
According to him, a number of local banks would not meet the
\nrequirements and would be closed down if the central bank applied
\nthe planned ruling now.<\/p>\n
"We've told them about this plan and they should be taking
\nsteps by now to anticipate it," he said.<\/p>\n
Bank Indonesia however would likely offer banks some time to
\ncope with the new ruling after issuing it, he added.<\/p>\n
He said the plan to include market risk in the calculation of
\nCAR levels was part of international best banking practices as
\nset by the Basle committee for international banking standards.<\/p>\n
The central bank has been pushing banks to comply with Basle's
\npractices to bring the industry up to the level of international
\nstandards.<\/p>",
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